SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA-' rating for the following bonds
issued by Provo City, UT on behalf of the electric utility system Provo
City Power:

--$18.9 million energy system revenue bonds series 2015A.

Proceeds will be used to fund the demolition of existing smoke stacks
and other retired power plant facilities and the construction of a new
energy system administration and operations building. The bonds will be
issued via competitive sale on April 21, 2015.

The Rating Outlook is Stable.

SECURITY

Bonds are secured by a pledge of net revenues of the electric system.

KEY RATING DRIVERS

ELECTRIC DISTRIBUTION SYSTEM: Provo City Power (Provo) is an enterprise
fund of the city of Provo, providing electric distribution services
within an exclusive service territory that is coterminous with the
city's boundaries. Provo is the largest (approximately 60% of total
revenues) member of the Utah Municipal Power Agency (UMPA), which
provides Provo with its power supply pursuant to an all-requirements
contract that extends through 2025.

IMPROVED MARGINS AND LIQUIDITY: Rising retail sales and a series of rate
increases that began in 2011 have improved financial margins and tripled
cash reserves over the past few years. At the end of fiscal 2014, Provo
had $25.7 million or 182 days in available funds on hand. Future
reserves are expected to fluctuate to some degree as cash is used for
capital needs, but remain in compliance with the council approved policy
of 25% of revenues(excluding designated capital funds).

MODEST LEVERAGE: Provo benefits from a modest debt profile as the
proposed series 2015 bonds will represent the utility's only outstanding
debt issue. Future capital needs are expected to be cash-funded through
dedicated reserves. Including Provo's share of UMPA's fixed obligations,
Fitch-calculated leverage increases but remains acceptable for the
rating category.

HIGH PROJECTED COVERAGE: Debt service coverage is expected to remain
well over 10.0 times (X) through 2020 due to the utility's strong
operating margins (three year average of 22.6%), low debt levels, and
lack of additional debt plans. Broader coverage of full obligations,
including transfers to the city and UMPA fixed obligations is lower, but
still strong at an average of 1.8x over the projected time period.

GROWING, CONCENTRATED CUSTOMER BASE: The utility benefits from a growing
customer base and increasing MWh sales. However, sales and revenues are
concentrated in the largest customer, Brigham Young University, which
accounted for 18% of MWh sales and 11.7% of operating revenues in fiscal
2014.

RATING SENSITIVITIES

COMPLIANCE WITH FINANCIAL POLICIES: The rating reflects Fitch's
expectation that Provo will comply with its council adopted financial
policies of maintaining cash reserves equal to 25% of operating revenues
and keep recurring transfers to the general fund at no more than 11% of
operating revenues. Failure to comply could negatively pressure the
rating or Outlook.

SUSTAINED PERFORMANCE AND RESOURCE STABILITY: Sustained financial
performance well above policy coupled with long-term resource stability
at UMPA could support consideration of an upgrade.

CREDIT PROFILE

Provo City Power, an enterprise fund of the city of Provo, Utah,
provides electric service to a predominately residential customer base
of 35,807 within the city of Provo's boundaries. Provo is the largest
municipally owned retail public power utility in the state and biggest
of the six member-participants in UMPA.

RETAIL SYSTEM RISK PROFILE

Fitch views Provo's operating risk profile as relatively low and
commensurate with a distribution system despite its ownership of
generation assets. Under the terms of Provo's power purchase agreement
and the corresponding capacity purchase agreement with UMPA, UMPA is
responsible for the management and scheduling of all member-owned power
resources, including those owned by Provo, and for meeting all member
power requirements. UMPA owns or has contractual rights to capacity
sufficient to meet member peak demand, which includes partial ownership
of a series of coal-fired units, as well as contracted hydroelectric and
natural gas peaking capacity.

GROWING, CONCENTRATED CUSTOMER BASE

Provo's customer base is somewhat concentrated with the top 10 customers
accounted for 33.8% of MWh sales and 25.2% of operating revenues in
fiscal 2014. The largest customer -- Brigham Young University (BYU) --
is the utility's only industrial customer and accounted for 18% of MWh
sales and 11.7% of operating revenues in fiscal 2014. A reduction in
sales to BYU would reduce Provo's sales and could negatively affect
revenues.

While Provo's customer base is predominately residential (87%), its
revenue base is shifted towards commercial customers that comprised
51.8% of rate revenues in fiscal 2014. Residential customers and BYU,
the utility's only industrial customer, accounted for 36.5% and 11.7% of
rate revenues, respectively.

Positively, Provo continues to experience increased demand as additional
residential and commercial customers enter the service area. MWh sales
have increased at an annual 1% rate from fiscal 2010-2014 with all three
customer classes contributing to the growth.

SOLID LIQUIDITY, HIGH PROJECTED COVERAGE

Provo's financial performance has improved significantly in recent years
as a series of rate increases were implemented beginning in 2011.
Operating margins increased sharply, averaging 25.8% from fiscal
2012-2014 compared to 13.3% in fiscal 2010.

Cash reserves, which had declined to a low of $1.1 million at the end of
fiscal 2010, were built up relatively quickly, rising to $25.7 million
(182 days cash on hand) at the end of fiscal 2014. Financial policies
adopted over the same time period specified that cash reserves would be
maintained at a minimum of 25% of operating revenues (approximately 90
days cash) not including cash set aside for future capital projects.

The utility's outstanding revenue bonds fully matured in fiscal 2014,
leaving the series 2015 bonds as the only outstanding debt issue for the
utility. Even with the issuance the utility's equity/capitalization
ratio (100% in 2014) is expected to remain high at around 79% before
factoring Provo's share of UMPA obligations. Provo has no additional
debt plans currently and expects to cash-fund future capital needs
through operating cash and designated funds.

Projected debt service coverage and coverage of full obligations are
expected to remain high with averages of 16.6x and 1.8x, respectively,
from fiscal 2016 through 2020. Significant factors that could lower
these levels, include higher than expected increases in power costs as
UMPA replaces expiring power contracts, volatility in the wholesale
power market that could reduce UMPA's sales to non-members, and the
potential reduction in load if BYU elects to generate power to support a
portion of its load.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.